The ride is getting bumpier

The TED spread is high, the T-Bill yield is low, banks are disappearing, etc.  It sounds grim and it is grim.  The "bright side," if I may call it that, is that the financial sector really does need to shrink.  It is doing so at an accelerated pace.  That is one problem from having so many derivatives markets but it is also their virtue.  There may be speculative swings in price but when reality arrives you can’t run away from it.  And a high TED spread can be a good thing too, forcing banks to shrink or consolidate or shed assets.  Bank consolidation raises profits and allows retained earnings to finance activity in the former losers.  If there is any consolation, this is not Japan of the 1990s, which was the original worry of many people.

The bumps may yet destroy the sled, but what appears to be bad news can in fact turn out to be good news.  Stay tuned…


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